Expat retirement savers need to take stock of more new moves to change pension rules in the UK.
Many expat retirement savers live overseas but keep their pensions in Britain, but even more rule tweaking could be on the way after Chancellor George Osborne announced changes in Budget 2014 to allow over 55s easier access to their cash.
Now, Pensions minister Steve Webb is suggesting that pension contribution relief may face an overhaul by scrapping the bandings and offering a fixed rate 30% to all retirement savers.
This would benefit basic rate taxpayers by upping relief from 20% to a proposed 30%, but at the same time will slash the tax top-up on contributions for higher and top rate taxpayers who receive 40% or 45% relief.
More pension changes afoot?
The minister is also thinking about:
- Axing the lifetime allowance and annual contribution limits of £40,000 a year
- Allowing unused pension funds to pass to families or loved ones on death without any tax charge. The current penalty for doing so is 55% of the value of the fund
The ideas could make transferring to offshore Qualifying Recognised Overseas Pension Schemes (QROPS) a harder choice for expats and international workers with UK pension rights.
Besides flexible investment advantages and the ability to avoid foreign currency exchange rate fluctuations by paying out benefits in most major currencies, many investors are attracted to QROPS because lifetime allowance and inheritance tax rules do not apply.
Expats need to decide
Reading between the lines, Webb may be thinking that too much pension cash is moving offshore to QROPS because they are more attractive to expats than onshore schemes.
HMRC does not release figures about how much cash is moving from the UK to QROPS, but has hinted around 10,000 transfers a year are made and that the cash released from UK pension firms amounts to well on the way to £5 billion since April 2006, when QROPS were first opened for business.
The problem for retirement savers weighing up the jump offshore to a QROPS is how to predict what will happen to onshore pensions after the next election in May 2015.
If the Tories or Lib-Deem coalition remains in power, more pension changes could be on the way and second-guessing them by moving to a QROPS injects doubt into the market.
Should Labour take power, the pension landscape could see equally major changes to reverse some of the more liberal changes underway.